Citrix 2007 Annual Report Download - page 17

The Citrix Partner Network™ includes three categories of partners: Citrix Solution Advisor™, Citrix Global
Alliance Partners™, and Citrix Certified™ Education Professional. This network represents the knowledge,
skills and experience of the entire spectrum of our partners around the world, and makes it easier for end-users to
engage their services and benefit from their solutions. Equally important, the Citrix Partner Network is designed
to help partners build their business by sharing in opportunities for planning and implementing application
delivery infrastructure solutions that arise from mutual customers and complement the sale of their own products.
We provide most of our distributors with stock-balancing and price protection rights. These transactions are
estimated and provided for at the time of sale as a reduction of revenue. Stock balancing rights permit
distributors to return products to us up to the forty-fifth day of the fiscal quarter, subject to ordering an equal
dollar amount of our other products prior to the last day of the same fiscal quarter. We are not obligated to accept
product returns from our distributors under any other conditions, unless the product item is defective in
manufacture. Product items returned to us under the stock-balancing program must be in new, unused and
unopened condition. Price protection rights require that we grant retroactive price adjustments for inventories of
our products held by distributors or resellers if we lower our prices for such products. In the event that we decide
to reduce our prices, we will establish a reserve to cover exposure to distributor inventory. We have not reduced
and have no current plans to reduce the prices of our products for inventory currently held by distributors or
resellers. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Critical Accounting Policies and Estimates” and Note 2 to our consolidated financial statements included in this
Annual Report on Form 10-K for the year ended December 31, 2007 for information regarding our revenue
recognition policy.
Operations
We control all purchasing, inventory, scheduling, order processing and accounting functions related to our
operations. For our Application and Server Virtualization products, including our XenServer product, and our
Application Performance Monitoring products, production, warehousing and shipping are performed internally in
the United States and by independent contractors on a purchase order basis in Ireland, depending upon the
customer’s geographic market. Master software CD-ROMs, development of user manuals, packaging designs,
initial product quality control and testing are primarily performed at our facilities. In some cases, independent
contractors also duplicate CD-ROMs, print documentation and package and assemble products to our
specifications. Production, final test, warehousing and shipping for our Application Networking products,
including our NetScaler products and Access Gateway products are primarily performed by a third-party contract
manufacturer. For our WANScaler products, we assemble, final test, warehouse and ship the final products to our
customers.
For our Application and Server Virtualization products and our Application Performance Monitoring
products, internal manufacturing capabilities and independent contractors provide a redundant source of
manufacture and assembly. For our Application Networking products, including our NetScaler, Access Gateway
and WANScaler products, internal manufacturing capabilities and independent contractors provide us with the
flexibility needed to meet our customer product and delivery requirements. To date, we have not experienced any
material difficulties or significant delays in the manufacture and assembly of our products.
We do not believe that backlog, as of any particular date, is a reliable indicator of future performance. While
it is generally our practice to promptly ship product upon receipt of properly finalized purchase orders, we
sometimes have orders that have not shipped or have otherwise not met all the required criteria for revenue
recognition. Although the amount of such product license orders may vary, the amount, if any, of such orders at
the end of a particular period is not material to our business.
We believe that our fourth quarter revenues and expenses are affected by a number of seasonal factors,
including the lapse of many corporations’ fiscal year budgets and an increase in amounts paid pursuant to our
sales compensation plans due to increases in fourth quarter revenue. We believe that these seasonal factors are
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